Donald Trump has said that the issue of Israeli settlements 'very much complicates' the prospects of a resolution with the Palestinians and that he is not sure either side in the conflict wants peace.

Trump was speaking to the right-wing Israeli newspaper Yisrael Hayom after his controversial declaration in December that the US recognises Jerusalem as Israel's capital and his subsequent threat to cut Palestinian aid.

Asked when the US would present a peace plan, Trump said: 'We will see what happens. Right now the Palestinians are not into making peace, they are just not into it. Regarding Israel, I am not certain it, too, is interested in making peace so we will just need to wait and see what happens.'

And asked whether Israeli settlements would form part of the peace plan, the US President said: 'We will be talking about settlements. The settlements are something that very much complicates and always have complicated making peace, so I think Israel has to be very careful with the settlements.'

More than 600,000 Jews live in around 140 settlements which are considered illegal under international law and were built since Israel's occupation in 1967 of the West Bank and East Jerusalem.

Trump said that the announcement about Jerusalem had been a highlight of his first year in office.

'I think Jerusalem was a very big point and I think it was a very important point,' he said.

'The capital, having Jerusalem be your great capital, was a very important thing to a lot of people. It was a very important pledge that I made and I fulfilled my pledge.'

The Palestinian Authority president, Mahmoud Abbas, has said that he will no longer accept the US as a mediator following the move.

The UN has expressed concern at a US decision to withhold more than half of a tranche of funding last month for an agency that supports Palestinian refugees.

Washington has said that it would hand over $60m (£43m) of a planned payment to the UN Relief and Works Agency (Unrwa), but would hold back $65m until it carries out 'reforms'.